By Henry Dubroff Friday, October 11th, 2024

If you want to navigate a turbulent time on geopolitics, keep your eye on inflation, trade and rising levels of U.S. government debt.

That’s the view from U.S. Bank Chief Investment Officer Eric Freedman, who spoke with the Business Times during a swing through Santa Barbara on October 9.

He called the inflationary impact of post-election politics and volatility in the Middle East “one of the key tests” for investors trying to take a strategic approach.

He said that a threat to bringing inflation under control would be a tit-for-tat tariff war that leads countries to erect barriers to trade, followed by rising prices.

“One of the biggest risks is that geopolitical issues drive an isolationist trading environment. That could be very inflationary,” he said.

In terms of rising government debt levels, he said that Japan, with a debt-to-GDP ratio that’s well over 100% of GDP got a rude shock over the summer when the central bank talked about raising interest rates — something that would increase debt service costs and also lead to higher prices.

The stock market plunged 28%  in a few days, giving a taste of what can happen when heavily indebted governments make policy changes.

“Debt and deficits are going to matter,” Freedman said, given that the U.S. is running unsustainable levels of spending. “When will the market say ‘We’ve had enough?’

As to the 2025 election, he said that while there will be a lot of short-term speculation, the full impact of the new administration’s policies won’t be felt for a year or more.